Liability in Special Class of Assessee

Liability in Special Class of Assessee. Gokul Sundar. K. Ravi, VTH Year B.A., B.L., [HONS], CONTENTS __________________________________________________________________________ 1. INTRODUCTION 2. TYPES OF SPECIAL ASSESSEE 3. LEGAL REPRESENTATIVES, 4. REPRESENTATIVE ASSESSES 5. FIRMS, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS 6. PARTNERS OF LIMITED LIABILITY PARTNERSHIP 7. EXECUTORS 8. SUCCESSION OF BUSINESS OR PROFESSION 9. SPECIAL ASSESSES 10.PARTITION 11.PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS 12.NON-RESIDENTS 13.PERSON LEAVING INDIA 14.AOP OR BOI OR AJP FORMED FOR A PARTICULAR EVENT OR PURPOSE 15.PERSON TRYING TO ALIENATE THEIR ASSETS 16.DISCONTINUANCE OR DISSOLUTION OF BUSINESS 17.PRIVATE COMPANIES IN LIQUIDATION 18.ROYALTY INCOMES 19.INCOME FROM KNOW-HOW SHARING 20.BIBLIOGRAPHY INTRODUCTION: Section 2 (7) of the Income Tax Act, 1961 defines “assessee” as a person by whom any tax or any other sum of money is payable under this Act, and include every person:  in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;  who is deemed to be an assessee under any provision of this Act;  who is deemed to be an assessee in default under any provision of this Act. Special assessee are those categories of natural and legal person who are either conferred with some privileges or imposed with a special burden by the Income Tax Act, 1961. Chapter XV of the Income-tax Act, 1961 deals with the chapter called ‘Liabilities of Special Class of Assessee’. Sections 159 to 181 of The Income-tax Act, 1961 in total amounting to 29 Sections deals with various types of Special Assesses. One Section from that 29 sections (i.e.) Section 181 is omitted from application. TYPES OF SPECIAL ASSESSEE The Income Tax Act, 1961 provides for 15 categories of assessee under Chapter XV. They are  Legal Representatives,  Representative Assesses (General),  Representative Assesses (Special):  Agents,  Unknown beneficiaries,  Oral Trust.  Firms, association of persons and body of individuals,  Executors,  Succession of business or profession,  Partition,  Profits of non-residents from occasional shipping business,  Non-residents,  Person Leaving India,  AOP or BOI or AJP formed for a particular event or purpose,  Person trying to alienate their Assets,  Discontinuance or dissolution of Business,  Private Companies in Liquidation and  Certain types of incomes:  Royalty,  Know-how. LEGAL REPRESENTATIVES Legal Representatives under the Income Tax Act, 1961 ‘has the same meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908) 1.’ Section 2 (11) of the Code of Civil Procedure, 1908 (herein after referred to as CPC) defines Legal representative as ‘"legal representative" means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued.’ Section 159 of the Income Tax Act, 1961 provides the special procedure for the Assessment of legal representatives. In case of assessment of Deceased Person, after the death of the person, his legal representatives is liable to the same extent as the deceased. 1 Section 2 (29) of the Income Tax Act, 1961. All legal proceedings initiated against the deceased before his death may be continued against the legal representatives. Any new proceedings can also be initiated against the legal representatives for the liability of the deceased. The legal representatives are personally liable for the undischarged debts of the assets of the deceased. In CIT Vs. Jai Prakash Singh, (1996) court held that ‘assessment by giving notice to the eldest son is not null and void for the want of notice to the other sons’.2 REPRESENTATIVE ASSESSES Sections 160 – 167 of the Income Tax Act, 1961 provides the special procedure for the Assessment of Representative Assessee. Section 160 of the Income Tax Act, 1961 defines Representative Assessee as  In respect of income of a non-resident – his agent,  In respect of income of minor, lunatic or idiot – the guardian or manager,  In respect of income which court of wards, Administrator general, trustee or receiver or manager appointed by the court - court of wards, Administrator general, trustee or receiver or manager.  In respect of income of declared Trust, Wakf (as provided under Exp. 1) – trustee(s),  In respect of income of oral trust (as provided under Exp. 2) - trustee(s). Section 161 of the Income Tax Act, 1961 provides the Liability of Representative Assessee. According to Section 161, the representative assessee is deemed to be the original assessee in case of absence of the original assessee. Representative Assessee is subject to the same duties, responsibilities and liabilities of the original assesse. Rights of Representative Assessee is enumerated under Section 162 of the Income Tax Act, 1961, which states that every Representative Assessee, who pays any sum under the Act, is entitled to recover the sum so paid, from the person on whose behalf it was paid. Representative Assessee can retain any money in his possession equal to the sum so paid. 2 Referred from https://indiankanoon.org/doc/1306030. AGENT: Agent is defined under section 163 to mean the persons:  Who is employed by or on behalf of the non-resident;  who has any business connection with the non-resident, from or through whom the nonresident is in receipt of any income, whether directly or indirectly; or  who is the trustee of the non-resident and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability. UNKNOWN BENEFICIARIES: Section 164 provides that, court of wards, Administrator general, trustee or receiver or manager are liable as representative assessees, on behalf or for the benefit of any person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown. Such income, such part of the income and such persons being hereafter in this section referred to as “relevant income”, “part of relevant income” and “beneficiaries”, respectively. Tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons. The whole or any part of the relevant income is not exempt under section 11 or section 12 - by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Section 2 (29C) defines “maximum marginal rate” as the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year. ORAL TRUST: Sec 164 A remarks that if trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, tax shall be charged on such income at the maximum marginal rate. According to Sec 165, part of trust income is chargeable (i.e.) only the proportion only of the income receivable by a beneficiary from the trust, which the part so chargeable bears to the whole income of the trust, shall be deemed to have been derived from that part. Direct Assessment or recovery is not barred and can be done against the original Assessee as per Section 166. Sec 167 grants the Assessing Officer (herein after referred to as AO) all the same remedies against all property of any kind vested in or under the control or management of any representative assessee as he would have against the Original assesse. FIRMS, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS Sec 167 A states that for firms, tax shall be charged on its total income at the rate as specified in the Finance Act of the relevant year (i.e.) 30% according to Finance Year, 2015. Sec 167 B remarks that for the members of AOP and BOI, individual Shares of members of AOP or BOI, whole or any part of the of the income is indeterminate or unknown on the total income of AOP or BOI has to be taxed at maximum marginal rate. PARTNERS OF LIMITED LIABILITY PARTNERSHIP Sec 167 C observers that for partners of limited liability partnership in liquidation, notwithstanding Limited Liability Partnership Act, 2008 (6 of 2009), where any tax due from a limited liability partnership or from any other person of such limited liability partnership of any income from previous year, cannot be recovered. The term “Firm”, “Partner” and “Partnership” have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (9 of 1932) and the expression “partner” shall also include any person who, being a minor, has been admitted to the benefits of partnership.3 Section 4 of the Indian Partnership Act, 1932, states that “Partnership” is the relation between persons who 3 Sec 2 (23) of Income-tax Act, 1961. have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”. Every person who was a partner of the limited liability partnership at any time during the relevant previous year shall be jointly and severally liable, unless he proves that no gross neglect, misfeasance or breach of duty on his part. “Tax due" includes penalty, interest or any other sum payable under the Act. EXECUTORS Income of the estate of a deceased person shall be chargeable to tax in the hands of the executor. If there is only one executor, then, as if the executor were an individual; or if there are more executors than one, then, as if the executors were an association of persons; Any income of the estate, distributed to or applied to the benefit of, any specific legatee of the estate during that previous year shall be excluded; but the income so excluded shall be included in the total income of the previous year of such specific legatee. Section 169 states that executor can recover the tax in accordance with Section 162 of the Act, from the income of the estate. SUCCESSION OF BUSINESS OR PROFESSION Section 170 deals with the succession to business otherwise than on death (i.e.) person carrying on any business or profession (predecessor) succeeded therein by any other person (successor), the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession and the successor shall be assessed in respect of the income of the previous year after the date of succession. When the predecessor cannot be found, the liability shall be imposed on the successor in like manner. Assessed on the predecessor, cannot be recovered from him, Assessing Officer shall make it payable by and recoverable from the successor. And the successor shall be entitled to recover the same from the predecessor. PARTITION Assessment after partition of a Hindu undivided family is dealt under Section 171. At the time of making an assessment if it is claimed by any member of a Hindu family, to the Assessing Officer that, a partition, whether total or partial, has taken place among the members of such family. AO shall on such claim, make an inquiry there into - after giving notice of the inquiry to all the members of the family and record a finding as to whether there has been a total or partial partition of the joint family property and the date on which it has taken place. The total income of the joint family for the period up to the date of partition shall be assessed as if no partition had taken place; and each members shall, in addition to any tax for which he or it may be separately liable, be jointly and severally liable for the tax on the income so assessed. PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS Profits from ship belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India, if seven and a half per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his Behalf, whether that amount is paid or payable in or out of India shall be deemed to be income accruing in India to such persons. A return of the full amount paid or payable should be furnished before the departure from any port in India or within thirty days of the departure of the ship. A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. NON-RESIDENTS Section 2 (30) defines “non-resident” as a person who is not a “resident” and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6. Recovery of tax in respect of non-resident from his assets is enshrined under Section 173 of the Income Tax Act, 1961. The person entitled to the income referred to in clause (i) of subsection (1) of section 9 is a non-resident, the tax chargeable thereon, whether in his name or in the name of his agent who is liable as a representative assesse may be recovered by deduction under any of the provisions of Chapter XVII-B and any arrears of tax may be recovered from any assets of the non-resident which are or may at any time come, within India. PERSON LEAVING INDIA Section 174 grants power to Assessing Officer that if it appears to him that any individual may leave India during the current assessment year or shortly after its expiry and that he has no present intention of returning to India, the total income of such individual for the period from the expiry of the previous year for that assessment year up to the probable date of his departure from India shall be chargeable to tax in that assessment year. For the purpose of making an assessment Assessing Officer may serve a notice upon such individual requiring him to furnish within such time, specified in the notice. The time specified should in no case be less than seven days. AOP OR BOI OR AJP FORMED FOR A PARTICULAR EVENT OR PURPOSE According to Section 174 A, for the assessment of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose, formed or established or incorporated for a particular event or purpose is likely to be dissolved in the assessment year, the total income of such AOP or BOI or AJP, up to the date of its dissolution shall be chargeable to tax in that assessment year based on the discretion of the AO. PERSON TRYING TO ALIENATE THEIR ASSETS If it appears to the Assessing Officer during any current assessment year that any person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoiding payment of any liability under the provisions of this Act, then according to the application of Section 175, the total income of such person for the period from the expiry of the previous year for that assessment year to the date when the Assessing Officer commences proceedings under this section shall be chargeable to tax in that assessment year. DISCONTINUANCE OR DISSOLUTION OF BUSINESS Section 176 and 177 of the Income Tax Act, 1961 provides that any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that assessment year. Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days. In CIT vs. Figgles & Co., 1983 court held that, the word ‘Discontinued business’ refers to a complete cessation or closing down of the business. In Sait Nagjee Puneslothan & Co. vs. CIT, 1964, court observed that, the disintegration of business into parts will be regarded as discontinuance of the business.4 PRIVATE COMPANIES IN LIQUIDATION Section 178 embodies that Liquidator of any company which is being wound up shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company. Assessing Officer shall after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date of notice the amount to be paid as tax. If the liquidator fails to give the notice and parts with any of the assets of the company, he shall be personally liable for the payment of the tax which the company would be liable to pay. Where there are more than one liquidator, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. Section 179 states that where any tax due from a private company in respect of any income of any previous year, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax, 4 Referred from https://indiankanoon.org/doc/1782010. unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. ROYALTIES OR COPYRIGHT FEES FOR LITERARY OR ARTISTIC WORK Section 180 enshrines that where the time taken by the author of a literary or artistic work in the making thereof is more than twelve months, the amount received or receivable by him during any previous year on account of any lump sum consideration, for the assignment or grant of any of his interests in the copyright of that work or of royalties or copyright fees, if he claims so, may be prescribed by the Assessing officer. In Thayat vs. CIT, 1976 court laid down that, ‘Author’ includes a joint author also and ‘Lump sum’ includes all advance payments made to the author. CONSIDERATION FOR KNOW-HOW Section 32 Explanation 4 of the Income Tax Act 1961 defines “know-how” as any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Section 180 A provides that time taken by an individual, who is resident in India, for developing any know-how is more than twelve months, he may elect that the gross amount of any lump sum consideration received or receivable by him during the previous year, if he so elects, will be regarded as an income from that year and two immediately preceding previous year. BIBLIOGRAPHY 1. Kailash Rai, Taxation Law, Allahabad Law Agency, 2015 Edition, 9th Reprint. 2. K. K. Malik, The Income Tax Act, 1961, Eastern Book Company. 3. Uma Pat Rai and Ejaz Ahmad, Commentary to Income Tax Act, 1961, Eastern Book Company. 4. T. N. Manoharan and G. R. Hari, Students’ Handbook on Taxation, Assessment year 2016-17, Snow Dew Publication, 2016 Edition.